Taxation Law: Assessable Income and Allowable Deductions

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Part A:........................................................................................................................................2
Part B:.........................................................................................................................................7
Facts of the Case:...................................................................................................................7
Decisions and main principles applied in judgement:............................................................8
Relevance of Case and likely decision on similar facts:........................................................9
References:...............................................................................................................................10

2TAXATION LAW
Part A:
As per “section 6, ITAA 1936” income from the personal exertion refers to the
income that is obtained from salaries, wages, superannuation allowance and retiring
allowances in capacity of employee for any services that is rendered or the proceeds that is
obtained from the business activities (Barkoczy, 2014). Assessable income is considered for
income tax purpose and it is included into taxable income. As per “section 6-5, ITAA 1997”
ordinary income refers to income based on the ordinary concepts and taxable under “section
6-5, ITAA 1997”. As held in “Scott v CT (1935)” income should be determined in respect of
ordinary concepts and use of mankind (Burton, 2017). The receipt of gross salary by Jane
constitutes income from personal exertion under “section 6, ITAA 1936”. The gross is
included for taxable purpose under “section 6-5, ITAA 1997” as income in accordance with
ordinary concepts.
The nexus test states that there should be adequate nexus among the receipts and
provisions of services such as product/reward or ordinary instances of provision of services.
As held in “Dean v FCT (1997)” the retention payment that was made to the employee for
remaining employed for a period of 12 months after takeover was regarded as income (Jover-
Ledesma, 2014). The receipt of performance bonus amounting to $25,000 by Jane will be
included into taxable income since there is a sufficient nexus with her employment. Jane also
reports the receipts of $4,500 as the clothing allowance from her employer Milton Hotel. The
sum will be included for assessment purpose under “section 6-5, ITAA 1997” because it is
received by her in capacity of employee for the services rendered in the course of her
employment.
As per section 8-1, the cost incurred in acquiring the ordinary items related to clothing
such as suit is usually not allowed for deductions. As held in “Mansfield v FCT (1996)” it

3TAXATION LAW
was held that expenses on ordinary articles of apparel is a non-deductible expenditure
irrespective whether such expenses is essential to make sure that the suitable appearance is
maintained in the particular profession or job. The expense of $7,500 on jewellery and formal
office dress by Jane is non-deductible expenses under “section 8-1, ITAA 1997”.
Mere prizes are not treated as income until it holds any adequate relation with the
taxpayer’s revenue producing activities. As held in “Kelly v FCT (1985)” award received by
the professional footballer for being the best player was considered assessable income
because it was associated to work and employment (Kenny et al., 2018). The receipt of
$5,000 best Australian financial controller award by Jane will be considered as taxable
income because it was related to her employment and work. Jane reward also included
computer for $2,550. As held in “Cooke and Sherden (1980)” a gain cannot be treated as
ordinary income if it is non-convertible cash. The receipt of computer by Jane is an item of
gain that be convertible to cash and hence it will be included for assessment purpose within
the ordinary concept of “section 6-5, ITAA 1997”.
As per “section 23 L, ITAA 1936” if the employer provides a benefit to the employee
then the benefit will be held as non-taxable income to the employee while the employer will
be liable for FBT upon the value of benefit (McCouat, 2018). The employer of Jane paid the
membership fees Jane. Under “section 23 L, ITAA 1936” this constitute a non-taxable fringe
benefit while Milton Hotel Ltd would be liable for FBT based on the value of membership
fees paid.
According to the Australian taxation office an individual taxpayer is allowed to claim
deduction for the expenses incurred on attending seminars, conferences and education
workshops which is adequately related to work activities (Sadiq et al., 2014). The taxpayer is
however required to exclude any private portion of the expenses incurred during trip. Jane